Before you move client money to pay your own costs, rule 4.3 requires a bill or other written notification of costs, a transfer for the specific sum in that bill, and enough money held for that particular client. Three conditions, and firms routinely miss all three at once.
Article · 24 July 2026
If a reporting accountant has one hour with your records, they will spend it on transfers from client to office. It is the most commonly breached area of the Accounts Rules, it is testable entirely from documents the firm already has to keep, and when it goes wrong it produces the one thing that qualifies a report: a shortfall on the client account.
Rule 4.3 sets three conditions and they are cumulative. Before transferring client money to pay your own costs you must give a bill or other written notification of costs; the transfer must be for the specific sum identified in that bill or notification; and it must be covered by the amount held for that particular client. Miss any one and the transfer is a breach.
At month end somebody moves £1,000 from a matter with a healthy balance, described as being on account of costs, and the bill follows when the fee earner gets to it. There is no bill, so there is no specific sum, so rule 4.3 is breached at the moment the money moves. This is far and away the most common pattern, and it usually starts as a cash-flow habit in a busy month and then never stops.
The bill is £2,400 including VAT and the ledger holds £2,500, so £2,500 moves and the matter closes tidily with a nil balance. The £100 difference is not covered by a bill and is not the firm's money. It is a breach of 4.3 and, on the client's side of the ledger, it is client money now sitting in the office account.
The amounts match to the penny, and the file looks perfect — until you compare the transfer date on the cash book with the bill date on the rule 8.4 central record. Rule 4.3 requires the bill or written notification before the transfer. Date order is the whole test, and it is trivially easy for an accountant to check across a whole year of transfers in a single comparison.
This is the serious one, because it creates a shortfall. Say the client ledger holds £1,800 and the bill is £2,200. Transferring £2,200 leaves the matter £400 in debit on the client side. The client account as a whole still balances, because other clients' money is making up the difference — which is precisely the problem, and precisely what rule 5.3 prohibits. Under rule 6.1 that £400 must be replaced immediately, not at month end and not when the client pays.
The SRA's expectation is that reports are qualified where there has been a significant breach of the Accounts Rules such that money belonging to clients or third parties is, has been, or may be placed at risk. A debit balance on the client side of a ledger is that, in a single line, with a date and an amount attached. It is also the single easiest thing in a set of law firm records to find.
Rule 8.3 requires a reconciliation of the bank or building society statement balance with the cash book balance and the client ledger total, at least every five weeks, signed off by the COFA or a manager. Differences must be promptly investigated and resolved.
The reason the rule specifies three figures rather than two is exactly the fourth failure mode above. Compare the bank statement with the cash book alone and a debit balance on one matter is invisible, because the account still holds the money — it just belongs to someone else. It is the client ledger total, matter by matter, that exposes it. A two-way reconciliation is not compliant, and it is not an accident that firms running one are the firms with undetected shortfalls.
Take a firm with 40 transfers a month from client to office, of which three each month are round-sum transfers on account of costs at an average of £900. The figures are illustrative.
That is 36 breaches a year and about £32,400 of client money moved without a bill behind it. None of it is dishonest, none of it produces a shortfall, and every one of it is a breach of rule 4.3 that a reporting accountant can identify by comparing the cash book with the rule 8.4 central record. Add a single matter where £2,200 was taken against a £1,800 balance, and the same year now contains a £400 shortfall as well.
The first set of facts is a systems problem. The second is the sort of thing that ends up in the report. The distinction is worth understanding, because the fix for both is the same and it is not expensive.
Paragraph 9.2 of the Code of Conduct for Firms requires the COFA to take all reasonable steps to ensure the firm and its managers and employees comply with the Accounts Rules, and to ensure a prompt report is made to the SRA of any facts or matters reasonably believed to be capable of amounting to a serious breach of those rules. The term is serious breach, not material breach — the material and non-material language went with the 2011 rules and using it now signals that a firm is working from out-of-date material.
The timing test is promptly. There is no seven-day or fourteen-day rule, and any source offering one is wrong. What "promptly" means in practice is that the clock starts when you know, which is an argument for finding these things at the monthly check rather than at the year end.
If the transfers are where your firm is exposed, the practical work is set out in client account bookkeeping and in our reconciliation guide. The COFA guide covers the reporting obligations in full, and COFA support explains what we take on for firms that would rather not carry it alone. Ten minutes on the client account health check will tell you whether this is your weakest area or your strongest.
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No. Rule 4.3 requires you to give a bill or other written notification of costs before transferring client money to pay your own costs, requires the transfer to be for the specific sum in that bill or notification, and requires it to be covered by the amount held for that particular client. A round-sum transfer described as being on account of costs fails the first two conditions at the moment the money moves, even if a bill follows a week later for the same amount. Written notification of costs is an alternative to a bill, but it still has to identify a specific sum and it still has to come first.
You have created a shortfall and rule 6.1 applies immediately. It requires breaches to be corrected promptly upon discovery, and any money improperly withheld or withdrawn from a client account to be immediately paid in or replaced. Rule 5.3 is the rule breached: you may only withdraw where sufficient funds are held for that specific client or third party, so the difference was funded by other clients' money. Replace it from office funds straight away, record it, and consider whether the facts are capable of amounting to a serious breach requiring a prompt report to the SRA under paragraph 9.2 of the Code for Firms.
Because it is the highest-yield test available from documents alone. Rule 8.4 requires a readily accessible central record of all bills and other written notifications of costs, and the cash book records every transfer with its date and amount. Comparing the two exposes bills raised after the money moved, transfers that exceed the billed sum, and transfers with no bill at all, across a whole year, without opening a single file. It also identifies the one thing that most reliably qualifies a report, which is a debit balance on the client side of a ledger showing that other clients' money made up a difference.
You should keep a record of breaches, but no numbered Accounts Rule requires a register. The 2011 rules had one; the 2019 rules do not. The obligation is built from two places: paragraph 2.2 of the SRA Code of Conduct for Firms, which requires you to keep and maintain records to demonstrate compliance with your obligations under the SRA's regulatory arrangements, and SRA guidance on the responsibilities of COLPs and COFAs, which says the SRA expects compliance officers to keep a record of all breaches and does not prescribe a method. Citing a rule number for it is a factual error worth avoiding.
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